Gottron, Frank

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1 National Institute of Allergy and Infectious Disease. NIAID Biodefense Research Agenda forCDC Category A Agents. Department of Health and Human Services. Washington, DC. 2002.Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RS21507Updated August 25, 2003Project BioShieldFrank GottronAnalyst in Science and Technology PolicyResources, Science, and Industry DivisionSummaryMany potential biological terrorism agents lack available countermeasures.President Bush proposed Project BioShield to encourage companies to develop newbioterror countermeasures.  The main provisions of that proposal include: (1) relaxingprocedures for bioterrorism-related procurement and peer review; (2) guaranteeing amarket through contract authority granted to the Secretary of Health and HumanServices (HHS) to buy countermeasures following Presidential approval, funded by apermanent, indefinite appropriation; and (3) allowing the HHS Secretary to permit theemergency use of unapproved countermeasures.  S. 15 (Gregg) incorporates theseproposals.  H.R. 2122 (Tauzin) and S. 1504 (Gregg) are similar to S. 15.  The largestdifference is rather than creating a permanent, indefinite appropriation, H.R. 2122 andS. 1504 authorize the appropriation of up to $5.593 billion for the purchase ofcountermeasures through FY2013.  H.R. 2122 creates a special reserve fund for theseappropriations while S. 1504 does not.  Some provisions of Project BioShield arecontroversial.  Some critics suggest that biotechnology and pharmaceutical companieswill require even more incentives than contained in these proposals.  Additionalincentives being considered by the 108th Congress include protection from litigationbecause of adverse reactions to the countermeasures, and tax and intellectual propertyincentives (S. 666, Lieberman).  Other options include directly funding development orincreasing the scope of existing federal programs designed to encourage technologycommercialization.  This report will be updated in response to legislative developments.IntroductionThe anthrax mailings of 2001 killed five people and required thousands to takeprophylactic antibiotic treatment.  If there had not been effective medical countermeasuresfor this strain of anthrax, the death toll would have been higher.  Effectivecountermeasures exist for few of the biological threats deemed the most dangerous by theCenters for Disease Control and Prevention (CDC).1CRS-22 Ceci Connolly. “U.S. Hopes Incentives Will Push Vaccine Development.” Washington Post.January 30, 2003. p. A08.Many attribute the paucity of bioterrorism countermeasures to the lack of asignificant commercial market.2  Because these diseases occur infrequently, there has beenlittle economic incentive for the investment of the millions of dollars required to bring anew treatment to market.  Project BioShieldTo encourage the development of new bioterrorism countermeasures, President Bushproposed Project BioShield in his 2003 State of the Union address.  The Project BioShieldAct of 2003 (S. 15, Sen. Gregg), as reported by the Senate Committee on Health,Education, Labor and Pensions, contains the administration proposal, with somerevisions.  The corresponding House bill, H.R. 2122 (Tauzin), and the subsequentlyintroduced Senate bill S. 1504 (Gregg) contain many of the same provisions as S. 15.  TheHouse passed H.R. 2122 on July 16, 2003.  Each of these bills would provide expeditedprocedures for bioterrorism-related procurement and peer review of research anddevelopment (R&D) proposals, making it easier for HHS to quickly commit substantialfunds to countermeasure projects.  The HHS Secretary would be granted contractauthority to purchase countermeasures approved by the President.  Another provisionwould give the HHS Secretary the power to temporarily allow the emergency use ofcountermeasures that lack Food and Drug Administration (FDA) approval.  The largest difference between the bills is how each would fund the purchase ofcountermeasures.  S. 15 authorizes and appropriates for each fiscal year in perpetuity“such sums as may be necessary” to procure countermeasures.  This mandatory fundingis not subject to the annual appropriations process.   In contrast, S. 1504 does notappropriate any money, it authorizes the appropriation of up to $5.593 billion total forFY2004– FY2013.   H.R. 2122 authorizes appropriations for the same amounts as S.1504, but money appropriated under this bill would go into a special fund that could beobligated through the end of FY2013.  An additional difference between the bills is theadditional reports required by H.R. 2122.  The House version requires annual reports fromthe HHS Secretary about the exercise of the authorities granted in this bill.  Four yearsafter enactment, H.R. 2122 requires a National Academy of Sciences review of howcountermeasure development has been helped by this act and to suggest any additionalactions that would be helpful. Relaxing Acquisition Procedures.  S. 15, S. 1504, and H.R. 2122 would relaxprocedures under the Federal Acquisition Regulation for  procuring  property or servicesused in performing, administering, or supporting biomedical countermeasure R&D.  Theywould increase the maximum, from $100,000 to $25 million, for contracts awarded undersimplified acquisition procedures.  Each bill would also allow these purchases using otherthan full and open competition.  Another provision would increase the micro-purchasemaximum from $2,500 to $15,000.  These increases are similar to, but greater than,changes granted to the DHS and other departments and agencies in the Homeland SecurityAct (HSA, P.L. 107-296).  The HSA provisions sunset in 2007 (DHS) and 2003 (otherfederal agencies) but the changes proposed in these bills are permanent.  They woulddecrease the amount of paperwork required for these types of purchases, but also theCRS-33 John Miller. “Interview with Richard Ebright.” The Scientist.  Vol. 17 (7). April 7, 2003. p. 52.4 Anthony S. Fauci. Testimony before the U.S. House Committee on Energy and CommerceHealth Subcommittee and Select Committee on Homeland Security. March 27, 2003. potential for oversight.  H.R. 2122 requires the HHS Secretary to report the use of theseprovisions annually to Congress.Expedited Peer Review.  S. 15, S. 1504, and H.R. 2122 would authorize theHHS Secretary to use an expedited award process, rather than the normal peer reviewprocess, for grants, contracts, and cooperative agreements related to biomedicalcountermeasure R&D activity, if the Secretary deems there is a pressing need for anexpedited award.  This power is limited to awards of not more than $1.5 million.Whether these procedures would apply to only a few such awards, or to many, will dependon what needs the Secretary considers pressing.  Some have expressed concerns that anexpedited peer review process will reduce the quality of the research.3  Peer review isdesigned to maximize the chances that only proposals with the greatest scientific meritget funding.  The award process is not described in detail in the bill. Market Guarantees.  A major provision of Project BioShield is designed toreassure biotechnology and pharmaceutical companies that if they successfully developa new biological countermeasure, the government will buy it for inclusion in the StrategicNational Stockpile (SNS).  The SNS contains pharmaceuticals, vaccines, medicalsupplies, and medical equipment designed to help respond to terrorist attacks and otheremergencies.  S. 15, S. 1504, and H.R. 2122 would allow the HHS Secretary, withconcurrence of the DHS Secretary and upon the approval of the President, to contract topurchase a product up to five years before the product is reasonably expected to bedeliverable.  Congress would be notified of a purchase by the DHS Secretary after thePresident approves it.The Bush Administration has stated that the best method to reassure companies thatthe money will be available to purchase countermeasures is to exempt those funds fromthe uncertainties of the annual appropriations process by funding the contract authoritywith a permanent, unlimited appropriation for that purpose.4  S. 15 incorporates thisconcept.  Although the permanent appropriation is intended to create market guarantees,it is unclear if it is sufficient or necessary.  First, any permanent appropriation is subjectto the actions of a subsequent Congress and President.  Second, contract authority fundedby a specific appropriation amount, such as at the level estimated by the Administration,conceivably could provide similar incentives and assurances to individual companies asmuch as contract authority funded by a permanent, unlimited appropriation.  S. 1504would use the annual appropriations process and H.R. 2122 would place suchappropriations into  a special fund.  The Administration estimates using $5.6 billion over 10 years to purchasecountermeasures, although S. 15 permits expenditure of  “any moneys in the Treasury nototherwise appropriated.”  The Congressional Budget Office projects that S. 15 would costapproximately $8.1 billion over 10 years, 45% more than the Administration estimate.S. 1504 and H.R. 2122 authorize the appropriation of up to $5.593 billion over for fiscalyears 2004 through 2013.  Under each of these bills, these funds could not be used foradministrative costs or to purchase vaccines under procurement contracts entered intoCRS-45 Lisa Richwine. “Concerns Raised About Funding for U.S. Biodefense Program.” Reuters.March 27, 2003.6 Food and Drug Administration. From Test Tube to Patient: Improving Health Through HumanDrugs. Washington, DC. September 1999. p.21. before January 1, 2003 (under S. 15 and S. 1504) or before enactment of ProjectBioShield (under H.R. 2122).  Several have criticized some of the provisions of S. 15.5  Although it is meant toaddress the perception of an urgent and presumably transient need for upgrading the SNS,there is no sunset clause to the appropriation under S. 15.  In contrast, S. 1504 and H.R.2122 authorize appropriations only through FY2013.  Some critics have expressedconcern over S. 15 for changing the nature of congressional oversight from the continuousand consultative annual appropriations process to one of simply reviewing executivedecisions after the fact.  Under S. 1504 and H.R. 2122, the fund would be subject toannual review through the appropriations process.  Furthermore, H.R. 2122 would requirethe HHS Secretary to prepare annual reports detailing actions taken under this Actincluding identification entities that received or were rejected for an award under this Act.To qualify for purchase, S. 15 and S. 1504 would require the HHS Secretary todetermine that there is no other significant market for the countermeasure.  Some havesuggested that this will not encourage the development of some of most usefulcountermeasures such as new wide-spectrum antivirals or antibiotics, since these mightbe used against common naturally-occurring diseases.  Such nonspecific countermeasuresmight be the best defense against currently unknown threats such as  emerging diseasesor genetically engineered pathogens.  H.R. 2122 would require the HHS Secretary onlyto factor whether there is a lack of a significant commercial market into the decision torecommend the purchase of a countermeasure.Exemptions to FDA Approval Process.  S. 15, S. 1504, and H.R. 2122 allowthe purchase of unapproved and unlicenced countermeasures.  S. 15 requires that the HHSSecretary determine that there is “...sufficient and satisfactory clinical experience orresearch data... [to] support a reasonable conclusion that the product will qualify forapproval or licensing... within 5 years.” H.R. 2122 omits the 5 year constraint.  Theapproval and licensing processes are designed to preclude the marketing of ineffective anddangerous treatments.  Only about 1 of 5 drugs that begin the approval process actuallybecome approved treatments.6  Because it is not possible to predict the outcome of theapproval process, critics of this provision suggest that the government will end uppurchasing countermeasures that will eventually fail to be approved.  To reduce the riskassociated with this provision, S. 15 and S. 1504 allow contracts to be written so thatunapproved products may be purchased at lower cost than approved products.  S. 15, S. 1504, and H.R. 2122 would allow the HHS Secretary to authorize theemergency use of medical products that have not yet been approved by the FDA or HHS.To exercise this authority the HHS Secretary must conclude: 1) the agent for which thecountermeasure is designed can cause serious or life-threatening disease; 2) the productmay reasonably be believed to be effective in detecting, diagnosing, treating, orpreventing the disease; 3) the known and potential benefits of the product outweigh itsknown and potential risks; 4) there is no adequate alternative to the product that isCRS-57 Dr. Kim Bush. Testimony before the of the U.S. Senate Committee on Health, Education,Labor, and Pensions, Health Subcommittee. January 30, 2003.8 See CRS Report RL31649, Homeland Security Act of 2002: Tort Liability Provisions. 9 John Miller. “Bioterrorism research: New Money, New Anxieties.” The Scientist.  Vol. 17(7),April 7, 2003. p. 52.approved and available; and 5) any other criteria prescribed in regulation are met.Although this provision would permit the Secretary to circumvent the FDA approvalprocess, its use would be limited to dire circumstances. Policy OptionsAlternative Contract Mechanisms.  Some have suggested that the newcontracting authority granted by Project BioShield would more effectively encouragecountermeasure development if modeled after that used by the Defense AdvancedResearch Projects Agency (DARPA).  DARPA funds many projects with a high risk offailure.  These contracts often last a few years and can be renewed if specified milestonesare met.  Companies are allowed to make a defined profit during the development phase.Although the direct funding of risky development projects implies that the governmentwill end up funding many products that never make it to the market, the government couldstructure the contracts so that this assumption of development risk translates into lowercosts of procurement.  Companies could rationalize to their stockholders that they wouldbe trading uncertain potential earnings for a guaranteed, albeit lower, profit. Indemnification.  Some feel that one of the largest barriers preventing morecompanies from developing countermeasures is risk of litigation stemming from adverseeffects.7  Some manufactures would like to see a program developed similar to theNational Vaccine Injury Compensation Program (P. L. 99-660), which provides analternative to the traditional tort system for resolving claims of adverse reactions.Another alternative is a complete indemnification such as the one granted for thesmallpox vaccine by the HSA (P. L. 107-296).  Another provision of the HSA, theSAFETY Act, limits the tort liability of sellers of anti-terrorism technologies.8  Sincethese limits do not apply to harm caused when no act of terrorism has occurred, thisprovision might not cover products, such as vaccines or detectors, that might be deployedwhen an attack is only suspected or threatened.  Sellers of such technology may feel thatthey still have an unacceptable risk of litigation stemming from adverse effects of theirproducts.  Increasing Basic Research.  Congress has recently increased National Instituteof Allergy and Infectious Diseases bioterrorism research six-fold to approximately $1.5billion in FY2003.  It is difficult to determine the optimal level of funding for basicresearch, but at some point the law of diminishing returns will apply.  Some havesuggested that this has already occurred and will inevitably lead to funding of unworthyprojects.9  Other critics suggest that the bottleneck for new countermeasures is in thetransfer of promising leads from basic research to the development stage.Alternative Policies to Encourage Technology Commercialization.  Thereare other federal programs designed to encourage research, development andCRS-610 See CRS Report RS20971, Orphan Drug Act: Background and Proposed Legislation in the107th Congress.  11  See CRS Report 95-50, The Federal Role in Technology Development and CRS Issue BriefIB91132, Industrial Competitiveness and  Technological Advancement.12  U.S. House Committee on Energy and Commerce Health Subcommittee and  Select Committeeon Homeland Security. March 27, 2003. 13 Andrew Pollack and Melody Petersen. “Untested Companies Enlist in U.S. Biodefense.”NewYork Times. March 23, 2003.commercialization of new treatments.  For example, the Orphan Drug Act (P. L. 97-414)encourages development of new treatments for very rare diseases through tax incentivesand market exclusivity agreements.10  Other federal programs include: cooperativeresearch and development agreements (CRADAs) between government laboratories anduniversities or industry; the Advanced Technology Program which provides seed moneyto develop generic technologies that have broad application across industries; the CentralIntelligence Agency funded non-profit venture capital corporation In-Q-Tel; the SmallBusiness Technology Transfer Program; and the Small Business Innovation ResearchProgram.11  In contrast to Project BioShield’s promise of a market at the end of a long andrisky development process, each of these programs offers direct help during thedevelopment process and provides incentives for commercialization of the results.  Somehave suggested expanding these programs will make the market guarantees in ProjectBioShield more effective in encouraging countermeasure development.  Other Legislative ProposalsThe Biological, Chemical, and Radiological Weapons Countermeasures ResearchAct (S. 666, Lieberman) includes additional economic incentives to encouragedevelopment of bioterrorism countermeasures.  In addition to offering market guarantees,S. 666 includes tax and intellectual property rights incentives.  Among the tax incentivesavailable are the ability to issue a special class of stock to fund the research that wouldnot subject investors to any capital gains tax and special tax credits to help fund theresearch.  Intellectual property incentives include the lengthening of patent term forcountermeasures or a two-year extension of any unrelated patent held by the corporation.S. 666 also includes indemnification provisions, limited antitrust exemptions, andincentives to increase research and manufacturing capacity.  ConclusionsIt is difficult to forecast if Project BioShield would provide enough incentives for thedevelopment of new bioterrorism countermeasures.  In congressional testimony, severalindustry witnesses have been supportive of the proposal but have also called for moreincentives.12  Some have noted that Project BioShield may entice smaller companies todevelop countermeasures while larger pharmaceutical companies may still find theguaranteed market too small to justify the opportunity costs associated with redirectingdevelopment efforts from potentially much larger markets.13  Such companies may findthat the unrelated-patent extension provision in S. 666 provides enough incentive tojustify the opportunity costs to their stockholders.  These issues will likely face Congressduring any debate on this legislation.

Project BioShield

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Project BioShield

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